Basel II Pillar 3. Capital Adequacy and Risk Disclosures as at 31 December Determined to be better than we ve ever been.

Transcription

1 Determined to be better than we ve ever been. Basel II Pillar 3 Capital Adequacy and Risk Disclosures as at 31 December 2010 Commonwealth bank of Australia ACN

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3 Table of Contents 1 Introduction 2 2 Scope of Application 3 3 Capital and Risk Weighted Assets Regulatory Capital Risk Weighted Assets 7 4 Credit Risk Credit Risk Exposure Excluding Equities and Securitisation Past Due and Impaired Exposures, Provisions and Reserves Portfolios Subject to Standardised and Supervisory Risk-Weights in the IRB Approaches Portfolios Subject to Internal Ratings Based Approaches Credit Risk Mitigation Securitisation 37 5 Equity Risk 45 6 Market Risk Traded Market Risk Non-Traded Market Risk 47 7 Operational Risk 47 8 Appendices Detailed Capital Disclosures List of APRA APS 330 Tables List of Supplemental Tables and Diagrams Glossary 53 For further information contact: Investor Relations Warwick Bryan Phone: warwick.bryan@cba.com.au

4 1 Introduction The Commonwealth Bank of Australia ( CBA ) is an Authorised Deposit-taking Institution ( ADI ) subject to regulation by the Australian Prudential Regulation Authority ( APRA ) under the authority of the Banking Act This document presents information on the Group s capital adequacy and risk weighted assets ( RWA ) calculations for credit risk including securitisation exposures and equities, market risk, interest rate risk in the banking book ( IRRBB ) and operational risk according to APRA requirements. The Group is accredited with advanced Basel II status to use the advanced internal ratings based approach ( AIRB ) for credit risk and advanced measurement approach ( AMA ) for operational risk under Basel II Pillar One minimum capital requirements. The Group is also required to assess its traded market risk and IRRBB requirements under Pillar One. The Group has maintained a strong capital position with the capital ratios well in excess of APRA s minimum capital adequacy requirements and the Board approved minimum levels at all times throughout the period. The Group s Common Equity, Tier One and Total Capital ratios as at 31 December 2010 are 7.35%, 9.71% and 11.50% respectively. This document is unaudited, however it has been prepared consistent with information supplied to APRA or otherwise published. Detailed qualitative and quantitative disclosure of the Group s capital adequacy and risk for the year ended 30 June 2010 is available on the Group s corporate website ASB Bank Limited ( ASB ) is subject to regulation by the Reserve Bank of New Zealand ( RBNZ ). RBNZ applies a similar methodology to APRA in calculating regulatory capital requirements. ASB operates under Basel II advanced status and Level 2 reporting by the Group includes ASB. These disclosures include consolidation of the Bank of Western Australia Limited ( Bankwest ), CommBank Europe Limited and PT Bank Commonwealth which use the Standardised Basel II methodology. 31/12/10 30/06/10 31/12/09 Summary Group Capital Adequacy Ratios (Level 2) % % % Common Equity (1) Tier One Tier Two Total Capital (1) Represents Fundamental Tier One Capital net of Tier One deductions. 2 Commonwealth Bank of Australia

5 2 Scope of Application This document has been prepared in accordance with Board approved policy and semi-annual reporting requirements set out in APRA Prudential Standard APS 330 Capital Adequacy: Public Disclosure of Prudential Information ( APS 330 ). APRA adopts a tiered approach to the measurement of an ADI s capital adequacy: Level 1: the Parent Bank (CBA) and offshore branches ( the Bank ) and APRA approved Extended Licensed Entities ( ELE ); Level 2: the consolidated banking group excluding the insurance and funds management businesses and the entities through which securitisation of Group assets are conducted; and Level 3: the conglomerate group including the Group s insurance and funds management businesses ( the Group ). The Group is required to report its semi-annual assessment of capital adequacy on a Level 2 basis. Additional semi-annual disclosure of capital ratios relating to material ADIs within the Group together with CBA s own Level 1 capital ratios are included under APS 330 Table 3g of this report (page 5). The net tangible component of the investment in the insurance, funds management and securitisation activities are deducted from capital, 50% from Tier One and 50% from Tier Two Capital. Commonwealth Bank of Australia Group (Level 3) Banking Operations (Level 2) Level 1 Level 1 Parent Bank (CBA) Offshore Branches ELE Entities that comply with APS 110: Capital Adequacy Insurance, Funds Management and Securitisation Subsidiaries Holding Companies Colonial Holding Company Colonial Finance Related ADIs ASB Bank Limited (ASB) Bank of Western Australia Limited (Bankwest) CommBank Europe Limited (Malta) PT Bank Commonwealth (Indonesia) Other Entities CBFC CommSec Other Entities Regulated only at an individual level by APRA Life and Funds Management Businesses Australian Life Insurance - CMLA Colonial First State General Insurance - Commonwealth Insurance NZ Life Insurance - Sovereign Other offshore insurance operations The transfer of regulatory capital and funding within the Group is subject to restrictions imposed by local regulatory requirements. In particular, APS 222 Associations with Related Entities establishes prudential limits on the level of exposure that the Bank may have to a related entity. The Bank and all of the subsidiaries of the Group are adequately capitalised. There are no restrictions or other major impediments on the transfer of funds within the Group and there are no capital deficiencies in the non-consolidated subsidiaries. APS 330 Table 1d Capital deficiencies in non-consolidated subsidiaries 31/12/10 30/06/10 31/12/09 $M $M $M Aggregate amount of under capitalisation in non-consolidated subsidiaries of the ADI group Basel II Pillar 3 3

6 3 Capital and Risk Weighted Assets Capital Management The Group maintains a strong capital position with the capital ratios well in excess of APRA s minimum capital adequacy requirements (Prudential Capital Ratio ( PCR )) and the Board approved minimum levels at all times throughout the half year ended 31 December Common Equity, Tier One Capital and Total Capital ratios as at 31 December 2010 were 7.35%, 9.71% and 11.50% respectively. Tier One Capital increased by 56 basis points over the prior half, influenced by both solid profit after tax (net of dividend and Dividend Reinvestment Plan ( DRP )) and a net reduction in Risk Weighted Assets ( RWA ), partially offset by foreign currency translation movements due to an appreciating Australian dollar. The Group s Total Capital ratio was relatively stable over the prior half at 11.50%. The benefits from the improvement in Tier One Capital were offset by the planned redemptions of Lower Tier Two instruments and foreign currency translation impact on these instruments. RWA were $286 billion at 31 December 2010, a decrease of $5 billion since 30 June This decrease was driven by a reduction in Credit Risk RWA due to credit rating upgrades and measurement improvements. This was partially offset by an increase in Interest Rate Risk in the Banking Book ( IRRBB ) RWA, reflecting the impact of an increase in interest rates and a lengthening of the repricing term of the Group s net asset position. Summary Group Capital Adequacy and RWA 31/12/10 30/06/10 31/12/09 Total Risk Weighted Assets ($M) 285, , ,449 Common Equity Capital ($M) 20,999 19,950 20,302 Tier One Capital ($M) 27,735 26,601 27,065 Total Capital ($M) 32,846 33,420 34,594 Common Equity (%) Tier One Capital (%) Total Capital (%) Regulatory Capital Framework Comparison The following table estimates the impact on the Group s capital as at 31 December 2010, of the differences between APRA s prudential requirements for calculating risk weighted assets and those of the Financial Services Authority ( FSA ), the UK regulator. Common Equity, Tier One and Total Capital ratios as at 31 December 2010 under the FSA method of calculating regulatory capital as a percentage of RWA are 10.6%, 13.5% and 15.1% respectively. Further details on the differences between APRA and the FSA are available on the Australian Bankers Association website. 31 December 2010 Common equity Tier One Total capital (1) capital capital Regulatory Capital Frameworks Comparison % % % Reported risk weighted capital ratios RWA treatment - mortgages (2) and margin loans IRRBB risk weighted assets Future dividends (net of Dividend Reinvestment Plan) Tax impact in EL v EP calculation Equity investments Value of in force (VIF) deductions (3) Total adjustments Normalised FSA equivalent (1) Represents Fundamental Tier One Capital net of Tier One deductions. (2) Based on APRA 20% Loss Given Default ( LGD ) floor compared to the FSA s 10% and the Group s downturn LGD loss experience. For Standardised portfolio, based on APRA risk weights under APS 112 compared to the FSA s standard. (3) VIF at acquisition is treated as goodwill and intangibles and therefore is deducted at Tier One by APRA. FSA allows VIF to be included in Tier One Capital but deducted from Total Capital. 4 Commonwealth Bank of Australia

7 3.1 Regulatory Capital APS 330 Table 2b to 2d Group regulatory capital position 31/12/10 30/06/10 31/12/09 $M $M $M Tier One Capital Paid-up ordinary share capital 23,384 23,379 22,606 Reserves 566 1, Retained earnings and current period profits 9,167 7,645 8,748 Non-controlling interests less ASB perpetual preference shares Total Fundamental Tier One Capital 33,136 32,064 32,271 Deductions from Tier One Capital Goodwill and other intangibles (excluding software) (8,382) (8,470) (8,523) Other deductions from Tier One Capital (1,750) (1,645) (1,527) 50/50 deductions from Tier One Capital (2,005) (1,999) (1,919) Total Tier One Capital deductions (12,137) (12,114) (11,969) Fundamental Tier One Capital after deductions 20,999 19,950 20,302 Residual Capital Innovative Tier One Capital 3,329 3,469 3,429 Non-innovative Tier One Capital 3,407 3,407 3,407 Less residual capital in excess of prescribed limits transferred to Upper Tier Two Capital - (225) (73) Total Residual Tier One Capital 6,736 6,651 6,763 Total Tier One Capital 27,735 26,601 27,065 Tier Two Capital Upper Tier Two Capital 1,161 1,380 1,166 Lower Tier Two Capital 5,955 7,438 8,282 Gross Tier Two Capital 7,116 8,818 9,448 Deduction from Tier Two Capital 50/50 deductions from Tier Two Capital (2,005) (1,999) (1,919) Total Tier Two Capital deductions (2,005) (1,999) (1,919) Total Tier Two Capital 5,111 6,819 7,529 Total Capital 32,846 33,420 34,594 APS 330 Table 3g Capital ratios 31/12/10 30/06/10 31/12/09 Significant Group ADIs % % % CBA Level 2 Tier One Capital ratio CBA Level 2 Total Capital ratio CBA Level 1 Tier One Capital ratio CBA Level 1 Total Capital ratio ASB Tier One Capital ratio (1) ASB Total Capital ratio (1) Bankwest Tier One Capital ratio (2) Bankwest Total Capital ratio (2) (1) Calculated under advanced Basel II methodology. (2) Calculated under standardised Basel II methodology. Basel II Pillar 3 5

8 Capital Initiatives The following significant initiatives were undertaken during the half year to actively manage the Group s capital: Tier One Capital The DRP for the 2010 final dividend was satisfied in full by an on market purchase and transfer of shares. As such there was no impact on the Group s capital ratios. The DRP participation rate was 25.8% and follows the removal of the 1.5% discount. Tier Two Capital Redemption of five separate subordinated Lower Tier Two debt issues totalling $795 million, the majority of which took place in November Banking Regulatory Framework The Group, excluding Bankwest, operates under Basel II advanced status which resulted in the Advanced Internal Ratings Based ( AIRB ) approach for credit risk and the Advanced Measurement Approach ( AMA ) for operational risk being adopted in the calculation of RWA effective from 1 January IRRBB was incorporated into the calculation of RWA from 1 July The agreed methodology for measuring market risk for traded assets remained unchanged from Basel I. Bankwest operates as a separate ADI and is separately regulated by APRA. Bankwest operates under the standardised Basel II methodology. There is a program in place to extend the Group s advanced accreditation to determine regulatory capital to Bankwest. ASB Bank is subject to regulation by the Reserve Bank of New Zealand ( RBNZ ). RBNZ applies a similar methodology to APRA in calculating regulatory capital requirements. ASB Bank operates under Basel II advanced status. APRA implemented transitional capital floors based on 90% of the capital required under Basel I. As at 31 December 2010 these transitional floors did not have any impact on the Group s capital levels. Insurance and Funds Management Business The Group s insurance and funds management companies held assets in excess of regulatory capital requirements at 31 December The Group s Australian and New Zealand insurance and funds management businesses held $1,147 million of assets in excess of regulatory solvency requirements at 31 December 2010 (30 June 2010: $1,007 million, 31 December 2009: $1,048 million). Regulatory Changes Basel III On 16 December 2010 the Basel Committee on Banking Supervision ( BCBS ) published details of its main banking reforms to strengthen global capital and liquidity regulations. The capital reforms ( Basel III: A global regulatory framework for more resilient banks and banking systems ) are designed to increase the quality, consistency and transparency of capital, to enhance the risk coverage framework, and to reduce systemic and pro-cyclical risks. The regulations increase the common equity minimum requirement from 2% to 4.5% and introduce a capital conservation buffer of 2.5%, taking the minimum total common equity requirement to 7%. Tier One and Total Capital minimum requirements (inclusive of the capital conservation buffer) will increase to 8.5% and 10.5% respectively. The reforms also introduce a minimum leverage ratio of Tier One Capital to total exposures of 3%. Parallel reporting of the leverage ratio is due to commence in 2013, with the expectation of full Pillar 1 implementation on 1 January The BCBS reforms will be phased in from 1 January 2013 to 1 January As a member of the BCBS, APRA has begun work on developing draft prudential standards and is expected to commence its consultation with Australian ADIs on these standards in the first half of the 2011 calendar year. Basel II enhancements announced in July 2009, relating to securitisation and market risk, will be implemented from 1 January Supervision of conglomerate groups APRA released a Discussion Paper titled Supervision of Conglomerate Groups in March The proposal aims to extend APRA s current prudential supervision framework to conglomerate groups that have material operations in more than one APRA regulated industry and/or have one or more material unregulated entities. The aims of the Level 3 proposal are to ensure that a conglomerate group holds adequate capital to protect the APRA regulated entities from potential contagion and other risks within the group. APRA is currently conducting a Quantitative Impact Study ( QIS ) to assess the impact of the proposed changes, which is due for completion in late February Detailed capital standards are expected to be released by APRA in 2011 and implementation to commence in Capital standards for general insurers and life insurers APRA released a Discussion Paper titled Review of capital standards for general insurers and life insurers in May 2010 followed by more detailed technical papers in July APRA is seeking to improve the risk sensitivity of its capital standards, and to introduce a definition and measurement of the capital base for life insurers that is consistent with general insurers and ADIs. APRA conducted a QIS on the proposed changes in the second half of the 2010 calendar year. Further refinements and a second QIS will be conducted in the first half of the 2011 calendar year. The final capital standards are expected to be released by APRA in 2012 with implementation to commence in The RBNZ issued draft solvency standards for life insurance operations on 23 August Following a period of consultation with the industry, the RBNZ is expected to release standards in the first half of 2011 which will take effect in Commonwealth Bank of Australia

9 3.2 Risk Weighted Assets APS 330 Table 3b to 3f Capital adequacy (risk weighted assets) 31/12/10 30/06/10 31/12/09 Dec 2010 vs Jun 2010 Jun 2010 vs Dec 2009 Asset Category $M $M $M $M % $M % Credit Risk Subject to advanced IRB approach Corporate 40,129 44,252 43,031 (4,123) (9) 1,221 3 SME corporate 22,071 26,216 25,322 (4,145) (16) SME retail 4,896 5,170 4,765 (274) (5) Sovereign 2,557 2,800 1,956 (243) (9) Bank 6,686 7,492 6,745 (806) (11) Residential mortgage 56,412 55,882 56, (1,027) (2) Qualifying revolving retail 6,761 6,772 6,292 (11) Other retail 6,398 6,322 6, Impact of the regulatory scaling factor (1) 8,755 9,294 9,079 (539) (6) Total RWA subject to advanced IRB approach 154, , ,414 (9,535) (6) 3,786 2 Specialised lending 34,339 35,483 38,678 (1,144) (3) (3,195) (8) Subject to standardised approach Corporate 8,040 8,872 10,053 (832) (9) (1,181) (12) SME corporate 7,597 7,746 7,540 (149) (2) SME retail 4,377 4,684 4,505 (307) (7) Sovereign (116) (54) (18) (8) Bank 1,583 1,136 1, (70) (6) Residential mortgage 22,605 22,436 22, (95) - Other retail 2,510 2,530 2,411 (20) (1) Other assets 4,619 5,472 6,405 (853) (16) (933) (15) Total RWA subject to standardised approach 51,430 53,091 54,884 (1,661) (3) (1,793) (3) Securitisation 1,894 1,569 1, (393) (20) Equity exposures 2,280 2,420 2,528 (140) (6) (108) (4) Total RWA for credit risk exposures 244, , ,466 (12,155) (5) (1,703) (1) Traded market risk 3,873 3,503 4, (530) (13) Interest rate risk in the banking book 17,033 10,272 16,601 6, (6,329) (38) Operational risk 20,049 20,283 18,349 (234) (1) 1, Total risk weighted assets 285, , ,449 (5,258) (2) (6,628) (2) (1) APRA requires RWA that are derived from the advanced IRB approach to be multiplied by a factor of 1.06 (refer glossary). Basel II Pillar 3 7

10 Risk Weighted Assets Total RWA decreased by $5 billion or 2% on the prior half to $286 billion with a decrease in credit risk RWA more than offsetting growth in IRRBB RWA. Credit Risk Exposure and RWA Credit risk RWA fell by $12 billion or 5% to $245 billion. The decrease was characterised by: Net run-off of non-retail portfolios with subdued demand for commercial lending, further moderated by a decrease in foreign currency exposure due to appreciation of the Australian dollar during the half; Signs of improving portfolio credit quality particularly in the retail portfolios where there was a reduction in arrears; and The implementation of revised downturn Loss Given Default ( LGD ) estimates for the non-retail portfolios after APRA approved a new LGD modelling approach for our risk-rated portfolios. The above net decreases were partially offset by an increase in RWA following a change in regulatory treatments. This included the use of a Standardised approach for reverse mortgages to align to APRA s requirements, and the implementation of revised PD estimates for ASB Home Loans after RBNZ prescribed and approved a new modelling approach. Traded Market Risk RWA Traded Market Risk RWA increased $370 million or 11% on the prior half to $3.9 billion. The increase was a result of trading from customer activity and participation in equity capital markets deals as market conditions improved during the period. Interest Rate Risk in the Banking Book RWA IRRBB RWA increased by $7 billion on the prior half or 66% to $17 billion. The IRRBB capital requirement increased in December 2010 because the repricing term of assets increased more than that of liabilities and derivatives positions. This is reflected by the increase in the net asset position which means the value of our assets will reduce more than the value of our liabilities and derivatives when interest rates increase. In addition, the IRRBB capital increased further due to enhancements to prepayment optionality risk measurements. Operational Risk RWA Operational Risk RWA remained largely unchanged on the prior half at $20 billion. Details of exposure movements over the prior half are as follows (see also table 4i Total credit exposure, page 9): Explanation of change in credit exposure Asset Category Regulatory Exposure Change $M Regulatory Exposure Driver AIRB corporate (including SME) and specialised lending (481) Slight run-off reflects subdued demand for new credit moderated further by impact of exchange rate appreciation on foreign currency denominated exposure. AIRB sovereign 825 Increased investment in well-rated government securities. AIRB bank 98 No appreciable change. AIRB consumer retail 4,316 Continued growth in the Australian home loan book at a slower rate than in previous periods. Home loan growth was moderated by appreciation of AUD against NZD on the NZ home loan book. Reverse mortgages were also transferred to a Standardised approach. Total advanced and specialised lending 4,758 Standardised including other assets 787 Reverse mortgages moved from AIRB to Standardised approach. There was an increase in zero risk-weighted cash holdings. Total excluding securitisation and equity exposures 5,545 Aligns to exposure movement disclosed in table 4i (page 9). Equities and securitisation exposures 137 Net growth in securitisation exposure driven primarily from increases in warehoused exposures and new securitisation investments. Total credit exposure 5,682 Total including equities and securitisation exposures. 8 Commonwealth Bank of Australia

11 The composition of the movement in Credit RWA over the prior half, as reflected in APS 330 Table 3b to 3f (page 7), is shown below. Explanation of change in credit RWA Total Credit RWA Credit RWA credit RWA Credit RWA driven by driven by Credit RWA movement driven by credit risk change in driven by Jun 10 to volume factor regulatory change in Dec 10 changes changes treatments credit quality Asset Category $M $M $M $M $M AIRB Corporate including SME and specialised lending (9,686) (494) (8,063) 200 (1,329) AIRB Bank (806) 24 (429) - (401) AIRB Sovereign (243) 77 (127) - (193) AIRB Consumer retail 595 1,179-2,508 (3,092) Standardised (including other assets) (1,661) (2,285) Equity and securitisation exposures Impact of Basel II scaling factor (539) (540) (510) Total credit RWA movement (12,155) (1,854) (9,129) 3,332 (4,504) 4 Credit Risk 4.1 Credit Risk Exposure Excluding Equities and Securitisation The following tables detail credit risk exposures (excluding Equities and Securitisation Exposures) subject to Advanced and Standardised Internal Ratings Based ( IRB ) approaches. APS 330 Table 4i Total credit exposures (excluding equities and securitisation) by portfolio type and modelling approach 31 December 2010 Off balance sheet Average On Non- exposure for balance market Market December Change in exposure sheet related related Total 2010 half (2) Dec 2010 vs Jun 2010 Portfolio Type $M $M $M $M $M $M % Subject to advanced IRB approach Corporate 37,321 24,389 5,498 67,208 67, SME corporate 32,475 5, ,561 39,006 (889) (2. 3) SME retail 7,340 1, ,107 9,118 (21) (0. 2) Sovereign 27,059 1,388 2,266 30,713 30, Bank 16,855 2,537 11,036 30,428 30, Residential mortgage 283,579 53, , ,788 3, Qualifying revolving retail 8,732 4,521-13,253 12, Other retail 5, ,030 6, Total advanced IRB approach 418,428 94,290 19, , ,621 4, Specialised lending 31,020 7, ,474 39, Subject to standardised approach Corporate 7, ,165 8,570 (810) (9. 0) SME corporate 6,775 1, ,813 7,884 (142) (1. 8) SME retail 3,844 1,435-5,279 5,376 (194) (3. 5) Sovereign (860) (68. 8) Bank 7, ,759 6,831 1, Residential mortgage 48, ,247 48,355 1, Other retail 2, ,554 2,565 (22) (0. 9) Other assets 13, ,471 13,884 (826) (5. 8) Total standardised approach 90,464 4, ,678 94, Total credit exposures (1) 539, ,896 20, , ,330 5, (1) Total Credit Risk Exposures (calculated as EAD) do not include equities or securitisation exposures. (2) The simple average of balances as at 31 December 2010 and at 30 June Basel II Pillar 3 9

12 APS 330 Table 4i Total credit exposures (excluding equities and securitisation) by portfolio type and modelling approach (continued) 30 June 2010 Off balance sheet Average On Non- exposure balance market Market for June Change in exposure sheet related related Total 2010 half (2) Jun 2010 vs Dec 2009 Portfolio Type $M $M $M $M $M $M % Subject to advanced IRB approach Corporate 37,592 23,621 5,667 66,880 66,977 (194) (0. 3) SME corporate 33,340 5, ,450 38,941 1, SME retail 7,466 1, ,128 9, Sovereign 26,253 1,587 2,048 29,888 28,966 1, Bank 15,759 2,192 12,379 30,330 30,896 (1,131) (3. 6) Residential mortgage 280,928 52, , ,864 12, Qualifying revolving retail 8,306 4,387-12,693 12, Other retail 4,976 1,017-5,993 5, Total advanced IRB approach 414,620 91,900 20, , ,172 14, Specialised lending 31,561 6, ,373 40,618 (2,492) (6. 0) Subject to standardised approach Corporate 8, ,975 10,036 (2,122) (19. 1) SME corporate 7, ,955 7, SME retail 4,098 1,375-5,473 5, Sovereign 1, , Large Bank 5, ,903 5,958 (110) (1. 8) Residential mortgage 46, ,462 47, Other retail 2, ,576 2, Other assets 14, ,297 14,973 (1,352) (8. 6) Total standardised approach 89,955 3, ,891 94,891 (1,998) (2. 1) Total credit exposures (1) 536, ,635 21, , ,681 9, (1) Total Credit Risk Exposures (calculated as EAD) do not include equities or securitisation exposures. (2) The simple average of balances as at 30 June 2010 and at 31 December December 2009 Off balance sheet Average On Non- exposure balance market Market for December Change in exposure sheet related related Total 2009 half (2) Dec 2009 vs Jun 2009 Portfolio Type $M $M $M $M $M $M % Subject to advanced IRB approach Corporate 37,787 25,016 4,271 67,074 77,493 (20,837) (23. 7) SME corporate 32,410 5, ,432 43,380 (9,896) (20. 5) SME retail 7,324 1, ,925 8, Sovereign 25,122 1,547 1,375 28,044 25,840 4, Bank 19,160 1,788 10,513 31,461 32,257 (1,592) (4. 8) Residential mortgage 268,153 52, , ,206 15, Qualifying revolving retail 8,154 4,223-12,377 11, Other retail 4,940 1,001-5,941 5, Total advanced IRB approach 403,050 93,433 16, , ,989 (11,871) (2. 3) Specialised lending 33,140 7, ,865 31,664 20, Subject to standardised approach Corporate 8,688 2, ,097 11,857 (1,521) (12. 1) SME corporate 6, ,604 7, SME retail 3,942 1,319-5,261 5,277 (32) (0. 6) Sovereign Bank 5, ,013 3,311 5,404 Large Residential mortgage 46, ,225 45,045 4, Other retail 2, ,454 2, Other assets 15, ,649 16,255 (1,212) (7. 2) Total standardised approach 90,019 5, ,889 92,191 7, Total credit exposures (1) 526, ,043 17, , ,844 15, (1) Total Credit Risk Exposures (calculated as EAD) do not include equities or securitisation exposures. (2) The simple average of balances as at 31 December 2009 and at 30 June Commonwealth Bank of Australia

13 APS 330 Table 4b Credit risk exposure by portfolio type As at Half year 31/12/10 average (3) Portfolio Type EAD $M EAD $M Corporate 75,373 75,615 SME corporate 46,374 46,891 SME retail 14,386 14,494 Sovereign 31,103 31,121 Bank 38,187 37,210 Residential mortgage (1) 385, ,143 Qualifying revolving retail 13,253 12,973 Other retail 8,584 8,577 Specialised lending 39,474 39,424 Other assets 13,471 13,884 Total credit exposures (2) 666, ,330 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. (3) The simple average of closing balances of each half year. As at Half year 30/06/10 average (3) Portfolio Type EAD $M EAD $M Corporate 75,855 77,013 SME corporate 47,405 46,721 SME retail 14,601 14,394 Sovereign 31,138 29,884 Bank 36,233 36,854 Residential mortgage (1) 380, ,208 Qualifying revolving retail 12,693 12,535 Other retail 8,569 8,482 Specialised lending 39,373 40,619 Other assets 14,297 14,973 Total credit exposures (2) 660, ,681 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. (3) The simple average of closing balances of each half year. As at Half year 31/12/09 average (3) Portfolio Type EAD $M EAD $M Corporate 78,171 89,351 SME corporate 46,036 50,943 SME retail 14,186 14,188 Sovereign 28,630 26,283 Bank 37,474 35,568 Residential mortgage (1) 368, ,252 Qualifying revolving retail 12,377 11,977 Other retail 8,395 8,366 Specialised lending 41,865 31,663 Other assets 15,649 16,255 Total credit exposures (2) 650, ,846 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. (3) The simple average of closing balances of each half year. Basel II Pillar 3 11

14 APS 330 Table 4c Credit risk exposure by portfolio type and geographic distribution 31 December 2010 New Australia Zealand Other Total Portfolio Type $M $M $M $M Corporate 56,421 6,143 12,809 75,373 SME corporate 39,413 6, ,374 SME retail 12,510 1, ,386 Sovereign 18,928 1,478 10,697 31,103 Bank 14,958 1,762 21,467 38,187 Residential mortgage (1) 353,584 31, ,894 Qualifying revolving retail 13, ,253 Other retail 7,237 1, ,584 Specialised lending 33,955 3,934 1,585 39,474 Other assets 9,897 1,337 2,237 13,471 Total credit exposures (2) 560,156 56,142 49, ,099 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. 30 June 2010 New Australia Zealand Other Total Portfolio Type $M $M $M $M Corporate 56,169 5,909 13,777 75,855 SME corporate 39,170 7, ,405 SME retail 12,606 1, ,601 Sovereign 20,852 1,509 8,777 31,138 Bank 14,091 1,218 20,924 36,233 Residential mortgage (1) 345,606 34, ,390 Qualifying revolving retail 12, ,693 Other retail 7,159 1, ,569 Specialised lending 33,412 4,106 1,855 39,373 Other assets 10,614 1,318 2,365 14,297 Total credit exposures (2) 552,372 59,246 48, ,554 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. 31 December 2009 New Australia Zealand Other Total Portfolio Type $M $M $M $M Corporate 57,421 6,618 14,132 78,171 SME corporate 37,464 7, ,036 SME retail 12,198 1, ,186 Sovereign 17,046 2,318 9,266 28,630 Bank 12,843 1,344 23,287 37,474 Residential mortgage (1) 333,051 34, ,025 Qualifying revolving retail 12, ,377 Other retail 6,988 1, ,395 Specialised lending 36,666 3,639 1,560 41,865 Other assets 11,777 1,064 2,808 15,649 Total credit exposures (2) 537,831 60,361 52, ,808 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. 12 Commonwealth Bank of Australia

15 APS 330 Table 4d Credit risk exposure by portfolio type and industry sector (1) 31 December 2010 Industry Sector Residential Other Asset Other mortgage personal finance Sovereign Bank finance Agriculture Mining Portfolio Type $M $M $M $M $M $M $M $M Corporate - - 1, ,997 2,123 4,539 SME corporate , ,992 11, SME retail - 1,222 3, , Sovereign , Bank , Residential mortgage (2) 371, Qualifying revolving retail - 13, Other retail - 8, Specialised lending Other assets - 4, Total credit exposures (1) 371,948 28,525 8,128 31,103 38,169 15,849 15,498 5,561 Industry Sector Retail/ wholesale Transport and Manufacturing Energy Construction trade storage Property (3) Other Total Portfolio Type $M $M $M $M $M $M $M $M Corporate 10,057 4, ,371 7,312 12,335 13,535 75,373 SME corporate 2, ,304 5,942 1,437 1,590 14,835 46,374 SME retail , ,252 4,066 14,386 Sovereign ,103 Bank ,187 Residential mortgage (2) ,318 1, ,365 5, ,894 Qualifying revolving retail ,253 Other retail ,584 Specialised lending 195 2,335 2, ,632 28,840 1,034 39,474 Other assets ,966 13,471 Total credit exposures (1) 13,597 6,878 6,398 16,339 12,978 47,382 47, ,099 (1) Total credit risk exposures do not include equities or securitisation exposures. (2) SME retail business lending secured by residential property have been allocated by industry. (3) Property includes REITs and excludes Business Services. Basel II Pillar 3 13

16 APS 330 Table 4d Credit risk exposure by portfolio type and industry sector (1) (continued) 30 June 2010 Industry Sector Residential Other Asset Other mortgage personal finance Sovereign Bank finance Agriculture Mining Portfolio Type $M $M $M $M $M $M $M $M Corporate - - 1, ,484 1,844 3,793 SME corporate , ,007 11, SME retail - 1,321 3, , Sovereign , Bank , Residential mortgage (2) 364, Qualifying revolving retail - 12, Other retail - 8, Specialised lending Other assets - 4, Total credit exposures (1) 364,192 28,383 8,258 31,138 36,233 16,487 15,898 4,710 Industry Sector Retail/ wholesale Transport and Manufacturing Energy Construction trade storage Property (3) Other Total Portfolio Type $M $M $M $M $M $M $M $M Corporate 10,884 4, ,782 7,247 13,369 13,457 75,855 SME corporate 2, ,155 5,879 1,463 1,666 15,157 47,405 SME retail , ,282 3,919 14,601 Sovereign ,138 Bank ,233 Residential mortgage (2) ,576 2, ,312 5, ,390 Qualifying revolving retail ,693 Other retail ,569 Specialised lending 199 2,336 2, ,825 28,243 1,450 39,373 Other assets ,475 14,297 Total credit exposures (1) 14,697 6,783 6,516 16,059 13,187 48,872 49, ,554 (1) Total credit risk exposures do not include equities or securitisation exposures. (2) SME retail business lending secured by residential property have been allocated by industry. (3) Property includes REITs and excludes Business Services. 14 Commonwealth Bank of Australia

17 APS 330 Table 4d Credit risk exposure by portfolio type and industry sector (1) (continued) 31 December 2009 Industry Sector Residential Other Asset Other mortgage personal finance Sovereign Bank finance Agriculture Mining Portfolio Type $M $M $M $M $M $M $M $M Corporate - - 1, ,137 1,733 3,732 SME corporate , ,015 11, SME retail - 1,308 3, , Sovereign , Bank , Residential mortgage (2) 361, Qualifying revolving retail - 12, Other retail - 8, Specialised lending Other assets - 5, Total credit exposures (1) 361,689 28,118 8,347 28,630 37,474 17,542 15,107 4,598 Industry Sector Retail/ wholesale Transport and Manufacturing Energy Construction trade storage Property (3) Other Total Portfolio Type $M $M $M $M $M $M $M $M Corporate 11,345 4, ,462 6,804 11,867 15,592 78,171 SME corporate 2, ,648 1,450 1,766 14,660 46,036 SME retail , ,235 3,627 14,186 Sovereign ,630 Bank ,474 Residential mortgage (2) , ,025 Qualifying revolving retail ,377 Other retail ,395 Specialised lending 464 2,865 2, ,886 27,943 2,203 41,865 Other assets ,578 15,649 Total credit exposures (1) 14,913 7,709 5,341 15,346 12,527 42,986 50, ,808 (1) Total credit risk exposures do not include equities or securitisation exposures. (2) SME retail business lending secured by residential property have been allocated by industry. (3) Property includes REITs and excludes Business Services. Basel II Pillar 3 15

18 APS 330 Table 4e Credit risk exposure by portfolio type and contractual maturity 31 December 2010 No specified 12mths 1 5yrs > 5 years maturity Total Portfolio Type $M $M $M $M $M Corporate 10,325 57,681 5,782 1,585 75,373 SME corporate 5,225 28,596 11, ,374 SME retail 2,097 6,955 5, ,386 Sovereign 4,251 16,766 10,086-31,103 Bank 16,175 20,377 1, ,187 Residential mortgage (1) 8,849 10, ,262 54, ,894 Qualifying revolving retail ,253 13,253 Other retail 3 3,490 2,478 2,613 8,584 Specialised lending 13,942 22,487 3,045-39,474 Other assets 5, ,241 13,471 Total credit exposures (2) 66, , ,060 81, ,099 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. 30 June 2010 No specified 12mths 1 5yrs > 5 years maturity Total Portfolio Type $M $M $M $M $M Corporate 10,065 58,838 5,424 1,528 75,855 SME corporate 5,958 28,019 12,387 1,041 47,405 SME retail 2,164 6,665 5, ,601 Sovereign 4,513 16,680 9, ,138 Bank 17,091 17,785 1,357-36,233 Residential mortgage (1) 10,024 10, ,058 53, ,390 Qualifying revolving retail ,693 12,693 Other retail 59 3,720 2,083 2,707 8,569 Specialised lending 14,240 22,212 2, ,373 Other assets 5, ,657 14,297 Total credit exposures (2) 69, , ,768 80, ,554 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. 31 December 2009 No specified 12mths 1 5yrs > 5 years maturity Total Portfolio Type $M $M $M $M $M Corporate 6,953 64,499 5,349 1,370 78,171 SME corporate 3,551 29,750 12, ,036 SME retail 1,226 7,682 5, ,186 Sovereign 5,972 16,497 6, ,630 Bank 20,781 15,533 1,160-37,474 Residential mortgage (1) 11,204 12, ,383 50, ,025 Qualifying revolving retail ,377 12,377 Other retail 45 3,225 2,610 2,515 8,395 Specialised lending 11,691 27,311 2,863-41,865 Other assets 5, ,850 15,649 Total credit exposures (2) 67, , ,666 77, ,808 (1) Residential mortgages include SME retail secured by residential property. (2) Total credit risk exposures do not include equities or securitisation exposures. 16 Commonwealth Bank of Australia

19 4.2 Past Due and Impaired Exposures, Provisions and Reserves All provisions for impairment assessed on an individual basis in accordance with AIFRS are classified as specific provisions in accordance with APS220 Credit Quality. Most of the collective provisions raised under AIFRS are included in the general reserve for credit losses ( GRCL ), however, since 31 December 2009, certain collective provisions not eligible for inclusion in the GRCL are classified as specific provisions. This includes, for example, collective provisions on unsecured retail products 90 days or more past due. Reconciliation of AIFRS and APS220 based credit provisions and APS 330 Table 4f General reserve for credit losses 31 December 2010 General reserve for Specific Total credit losses (2) provision (2) provisions $M $M $M Collective provision (1) 3, ,327 Individual provisions (1) - 2,169 2,169 Total provisions 3,211 2,285 5,496 Additional GRCL requirement (3) Total regulatory provisions 3,362 2,285 5,647 (1) Provisions as reported in financial accounts according to AIFRS. (2) Provisions classified according to APS 220 Credit Quality. (3) The Group has recognised an after tax deduction from Tier One Capital of $106 million in order to maintain the required minimum GRCL. 30 June 2010 General reserve for Specific Total credit losses (2) provision (2) provisions $M $M $M Collective provision (1) 3, ,461 Individual provisions (1) - 1,992 1,992 Total provisions 3,311 2,142 5,453 Additional GRCL requirement (3) Total regulatory provisions 3,435 2,142 5,577 (1) Provisions as reported in financial accounts according to AIFRS. (2) Provisions classified according to APS 220 Credit Quality. (3) The Group has recognised an after tax deduction from Tier One Capital of $90 million in order to maintain the required minimum GRCL. 31 December 2009 General reserve for Specific Total credit losses (2) provision (2) provisions $M $M $M Collective provision (1) 3, ,452 Individual provisions (1) - 1,822 1,822 Total regulatory provisions (2) 3,319 1,955 5,274 (1) Provisions as reported in financial accounts according to AIFRS. (2) Provisions classified according to APS 220 Credit Quality. Basel II Pillar 3 17

20 The following tables provide a summary of the Group s financial losses by portfolio type, industry and geography. APS 330 Table 4f (i) Impaired, past due, specific provisions and write-offs charged by industry sector 31 December 2010 Net half year Past due Specific charges for Half year Impaired loans provision individual actual assets 90 days balance (1) provision losses (2) Industry Sector $M $M $M $M $M Home loans 846 2, Other personal Asset finance Sovereign Bank Other finance Agriculture Mining (4) 3 Manufacturing Energy Construction Wholesale/retail trade Transport and storage Property 1, Other Total 5,184 3,224 2, (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off, for the half year ended 31 December June 2010 Net half year Past due Specific charge for Half year Impaired loans provision individual actual assets 90 days balance (1) provision losses (2) Industry Sector $M $M $M $M $M Home loans 836 2, Other personal Asset finance Sovereign Bank Other finance (18) 45 Agriculture Mining Manufacturing Energy (58) 39 Construction Wholesale/retail trade Transport and storage Property 1, Other Total 5,216 3,350 2, (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off, for the half year ended 30 June Commonwealth Bank of Australia

21 APS 330 Table 4f (i) Impaired, past due, specific provisions and write-offs charged by industry sector (continued) 31 December 2009 Net half year Past due Specific charge for Half year Impaired loans provision individual actual assets 90 days balance (1) Provision losses (2) Industry Sector $M $M $M $M $M Home loans 858 2, Other personal Asset finance Sovereign Bank Other finance Agriculture (7) 2 Mining Manufacturing Energy Construction Wholesale/retail trade Transport and storage Property 1, Other Total 4,823 3,026 1, ,118 (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off, for the half year ended 31 December Basel II Pillar 3 19

22 APS 330 Table 4f (ii) Impaired, past due, specific provisions and write-offs charged by portfolio As at 31 December 2010 Net half year Past due Specific charges for Half year Impaired loans provision individual actual assets 90 days balance (1) provisions losses (2) Portfolio $M $M $M $M $M Corporate including SME and specialised lending 4, , Sovereign Bank Residential mortgage 846 2, Qualifying revolving retail Other retail Total 5,184 3,224 2, (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off, for the half year ended 31 December As at 30 June 2010 Net half year Past due Specific charges for Half year Impaired loans provision individual actual assets 90 days balance (1) provisions losses (2) Portfolio $M $M $M $M $M Corporate including SME and specialised lending 4, , Sovereign Bank Residential mortgage 836 2, Qualifying revolving retail Other retail Total 5,216 3,350 2, (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off, for the half year ended 30 June As at 31 December 2009 Net half year Past due Specific charges for Half year Impaired loans provision individual actual assets 90 days balance (1) provisions losses (2) Portfolio $M $M $M $M $M Corporate including SME and specialised lending 3, , Sovereign Bank Residential mortgage 858 2, Qualifying revolving retail Other retail Total 4,823 3,026 1, ,118 (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off, for the half year ended 31 December Commonwealth Bank of Australia

23 APS 330 Table 4g (i) Impaired, past due and specific provisions by geographic region 31 December 2010 Past due Specific Impaired loans provisions assets 90 days balance Geographic Region (1) $M $M $M Australia 4,458 2,959 2,060 New Zealand Other Total 5,184 3,224 2,285 (1) Balances are disclosed based on the risk domicile of the borrower. The Group s financial statements disclose balances based on the domicile of the lending entity. 30 June 2010 Past due Specific Impaired loans provisions assets 90 days balance Geographic Region (1) $M $M $M Australia 4,589 3,039 1,969 New Zealand Other Total 5,216 3,350 2,142 (1) Balances are disclosed based on the risk domicile of the borrower. The Group s financial statements disclose balances based on the domicile of the lending entity. 31 December 2009 Past due Specific Impaired loans provisions assets 90 days balance Geographic Region (1) $M $M $M Australia 4,158 2,756 1,762 New Zealand Other Total 4,823 3,026 1,955 (1) Balances are disclosed based on the risk domicile of the borrower. The Group s financial statements disclose balances based on the domicile of the lending entity. Impaired loans have reduced slightly over the half, with reductions in Bankwest impaired assets, slightly offset by an increase in other CBA impaired assets. Loans 90 days or more past due have reduced primarily due to improvement in retail arrears in most portfolios. The improvement in CBA retail arrears is largely attributed to further investment in collections. The Group s GRCL (before tax) by geographic region is distributed as follows: APS 330 Table 4g (ii) GRCL by geographic region 31/12/10 30/06/10 31/12/09 Geographic Region $M $M $M Australia 3,093 3,098 2,987 New Zealand Other Total GRCL 3,362 3,435 3,319 Basel II Pillar 3 21